Need Help on CGT

Hi

My wife and I sold a house earlier this year, and I have a query on capital gains tax.

We bought the house (Property A) in June 1998, and lived in this house until May 2000.
It was rented for the rest of 2000. We lived in it again for the entire year of 2001.
We subsequently bought another house (Property B) which became our main family residence,

The Purchase Price of property A was 117,000 euro.
The Selling Price was 225,000 euro.

Can anyone tell me what capital gains tax we need to pay on this house ?
I know it's 20% of the profit but how do I minimise this ?
Somebody told me that I need to take inflation into account.
Also, does the fact that it was our family residence for 3 years have any bearing ?

I'd appreciate if somebody could help me out.

This is just a rough guide to what you need to do, don't take my word as gospel, it's based on a hazy recollection of what I went through a few years ago (but my calcs were vetted by an accountant, and I suggest you do the same!)

Firstly, if the house were your principal private residence for all of the time, there would be no CGT at all. The fact that it was your ppr for 30% of the time (3 years out of 10), I think that reduces the taxable gain by 30%.

Also, you can take costs into account (both costs of buying the first house (but not stamp duty) and costs of selling it (agent's fees) to reduce the gain further. Any money you spent doing up the house can also be taken into account too.

The revenue publish a table of factors that reduced the real value of chargable gains but quit updating it in 2004, (the premise being that inflation was (then) so low so it didn't affect calculations that much (another stealth tax - they should bring it back now with inflation on the up)) you can still see it at: http://www.revenue.ie/leaflets/cgt1.pdf (appendix 1).

What you need to do is to take all your costs into account, and using the table referred to above, translate them into today's money. Subtract that total from the money you made on the sale (net of agent's fees) and that is your capital gain.

As you spent 30% of your time in that house as your PPR, then reduce the gain by 30%.

Take 20% of that figure (not sure when the new 22% rate applies from, again, check that out with an accountant) and that's the tax you owe.

Example:
If you had costs of (say) €10000 when you bought the house, then you spent €127000 in June 1998 which is €127000 * 1.232 (from the table) = 156464 in today's money.

If you (say) redid the bathrooms in 1999 for €10000, then that would translate to €10000 * 1.212 = €12120 in today's money.

Your total outlay is €168584 in today's money.

You sold for €225000, assuming 3% agent's fees (€6750) so your net amount realised was €218250.

Your "chargeable gain" is the difference between the outlay and net income which in this case is €49666

As you lived in the house for 3 years of the 10 you owned it, you can reduce it by 30% (to €34766).

The tax owed is 20% (22%?) of that amount = €6953.

If you've made no other CGT claims this year (share dealing etc) you can use your allowances to reduce the gain by €1270 (€2540 if you're married and house is in both names) which would reduce the tax to €6699 (€6445 if married).

That's the rough gist of the calculations involved. I strongly urge you to go to an accountant (along with any supporting documentation of costs incurred etc) for them to check it. The pro-rata reduction is something I recall reading in the Irish Times a while ago, but it comes up fairly regularly.

I hope that helps!

Yakuza

Thanks very much. That was extremely helpful.

Pat

Yakuza's summary is along the right lines, but as he says himself, don't take his word as gospel, as it is not 100% correct, for example, the occupation of the house for 3 years out of 10 will reduce the taxable element of the gain by 40% not 30%.

I would also recommend taking professional advice.

Re: CGT help for individual

I have a query re CGT on a the sale of a house that i had built.
In 2005 i purchased a small plot of land in cavan for 40k. I then built a house through direct labour and sold it in Jan 2007 for 317k.The following are the costs associated with the building of the house.
- builder 187k
- loan interest 19k
- solicitor 7k
- Architect 5k
- council fees 5k
- stamp duty 5k
- sundry 38k

My profit was approx 51k

Could someone please advise as to how my cgt should be calculated?

Many thanks in advance